CIMB has ‘hold’ recommendation on SPH with $3.36 target

To recap, a total of 12 bids were submitted for the first Bidadari mixed commercial and residential site. SPH-Kajima JV submitted the highest bid of $1.132 billion, 1.1% higher than the second highest bid.

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The site, located next to Woodleigh MRT station, has a land area of 273,000 sf, 99-year lease tenure and maximum GFA of 958,000 sf which can yield 825 private homes.

In a Thursday report, analyst Ngoh Yi Sin says, “At land cost of $1,181 psf, we estimate the breakeven cost for the project at close to $1,600 psf. We assume an ASP of $1,700 psf, which is at a premium to the closest development’s ASP of $1,400-1,450 psf for Forest Wood, to factor in its strategic location and expectations for the future development of Bidadari.”

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Assuming that the total project cost will amount to $1.6 billion, Ngoh foresees the total GDV will be about $1.69 billion, which works out to a projected pre-tax return of 6-10%.

SPH also has a proven track record in building malls, such as the Seletar Mall, which was a lease won by SPH with United Engineers in August 2012.

The Bidadari site would be SPH’s first mixed commercial development and fourth retail mall.

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“In our view, this mixed-use development is well-positioned, with a wide catchment of future residents for potential retailers. We also think this could boost property earnings’ contribution in the medium term,” says Ngoh.

Ngoh says SPH is likely to fund the acquisition with bank borrowings and internal resources, as SPH had a low net gearing ratio of 25.8% at end 2QFY18/17.

Shares of SPH closed 1 cent lower at $3.16 on Thursday.